Gold and Silver False Break Lows?

Both gold and silver have embarked on early week moves down. These moves reek
of attempts to flush out the weak hands. Many of those bulls still remaining
would surely have a good case of the heebie jeebies right about now. While
I am also a bull, currently holding long silver positions, I have found the
move less intimidating as I was expecting these downmoves. Although I must
admit to getting a slight twitch come the end of trading on Tuesday! Let's
investigate.

Gold Daily Chart

I have added Bollinger Bands and we can see this move down has gone from the
middle band back down to the lower band. The question now is will there be
strong follow through to the downside that clings to the lower band or will
it bounce right off it and head back up? I favour the latter.

I have added Fibonacci retracement levels and price has now hit the 76.4%
level. Perhaps that will provide the foundation for a turn and move back up.

I have also added a Parabolic Stop and Reverse (PSAR) indicator just to demonstrate
the corrective nature of trading since the July high. The dots have been busted
every which way since that top. Price has been all over the place. Now compare
that to the recent move up which seemed of an impulsive nature.

Finally, I have added a Relative Strength Indicator (RSI) which shows this
current low being accompanied by a higher RSI reading. A bullish divergence.

Let's move on to silver.

Silver Daily Chart

The Bollinger Bands once again show price coming back to the lower band. One
last kiss goodbye perhaps? I hope so.

The low on Tuesday was at US$19.09. This is also where it closed. This low
could well have exhausted the sellers.

The previous week's low was bang on the 76.4% level. Price has now busted
through but without any follow through to the downside, we may well have a
false break low on our hands. If that is the case, then price should turn around
and start to move up. This move up should be, to quote the great South African/English
cricketer Tony Greig, "hard and fast".

I have also added the RSI which is showing a triple bullish divergence. Interestingly,
the third and current RSI reading is 20.30 while the second divergence showed
a reading of 20.31. That is a double bottom on the RSI. And it is a double
bottom with the trend as the first RSI reading was below those levels. This
should lead to a powerful move up! This is very interesting indeed!!

I suspect the move down this week would have been the last straw for many
bulls. Not me though. While it can be a bit nervewracking, if you have confidence
in the analysis then it is just a matter of putting stops well away from the
market and staying solid.

Both gold and silver have marginally broken their previous week's lows. This
looks like the washout of selling which was mentioned as a possibility in a
recent report. If prices can now turn around and move up strongly, we will
likely have false break lows in place and the next leg up above the July highs
in progress.

As for me, apart from breaking my general rule of not trading against the
main trend, I have just broken another by averaging down. I have added to current
long positions down at these levels. But just in a small way. All that is left
to do now is resort to positive thinking. C'mon!!!

Austin Galt is The Voodoo Analyst. I have studied charts for over 20 years
and am currently a private trader. Several years ago I worked as a licensed
advisor with a well known Australian stock broker. While there was an abundance
of fundamental analysts, there seemed to be a dearth of technical analysts.
My aim here is to provide my view of technical analysis that is both intriguing
and misunderstood by many. I like to refer to it as the black magic of stock
market analysis.

Disclaimer: The above is a matter of opinion provided for general information
purposes only and is not intended as investment advice. Information and analysis
above are derived from sources and utilising methods believed to be reliable,
but we cannot accept responsibility for any losses you may incur as a result
of this analysis. Individuals should consult with their personal financial
advisors.